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NBFCs are doing functions similar to banks. What is difference between banks &
NBFCs ?
NBFCs are doing functions akin to that of banks, however there are a few
differences:
(i) a NBFC cannot accept demand deposits (demand deposits are funds deposited
at a depository institution that are payable on demand -- immediately or within a
very short period -- like your current or savings accounts.)
(ii) it is not a part of the payment and settlement system and as such cannot issue
cheques to its customers; and
(iii) deposit insurance facility of DICGC is not available for NBFC depositors
unlike in case of banks.
Is it necessary that every NBFC should be registered with RBI?
In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC
should be registered with RBI to commence or carry on any business of non-
banking financial institution as defined in clause (a) of Section 45 I of the RBI
Act, 1934.
The above type of companies may be further classified into those accepting
deposits or those not accepting deposits.
Besides the above class of NBFCs the Residuary Non-Banking Companies are also
registered as NBFC with the Bank.
Where one can find a list of registered NBFCs and instructions issued to NBFCs?
The list of registered NBFCs is available on the web site of Reserve Bank of India
[ Get Quote ] and can be viewed at www.rbi.org.in. The instructions issued to
NBFCs from time to time are also hosted at the above site. Besides, instructions
are also issued through Official Gazette notifications. Press releases are also
issued to draw attention of the public/NBFCs.
Can all NBFCs accept deposits and what are the requirements for accepting
public deposits?
All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a
valid certificate of registration with authorisation to accept public deposits can
accept/hold public deposits. The NBFCs accepting public deposits should have
minimum stipulated net owned fund and comply with the directions issued by
the bank.
Is there any ceiling on acceptance of public deposits? What is the rate of interest
and period of deposit which NBFCs can accept?
Category of NBFC
Ceiling on public deposits
AFCs maintaining CRAR of 15% without credit rating
AFCs with CRAR of 12% and having minimum investment grade credit rating 1.5
times of NOF or Rs 10 crore whichever is less
4 times of NOF
LC/IC with CRAR of 15% and having minimum investment grade credit rating 1.5
times of NOF
Presently, the maximum rate of interest a NBFC can offer is 11%. The interest
may be paid or compounded at rests not shorter than monthly rests.
The NBFCs are allowed to accept/renew public deposits for a minimum period of
12 months and maximum period of 60 months. They cannot accept deposits
repayable on demand.
The RNBCs have different norms for acceptance of deposits which are explained
elsewhere in this booklet.
What are the salient features of NBFCs regulations which the depositor may note
at the times of investment?
i) The NBFCs are allowed to accept/renew public deposits for a minimum period
of 12 months and maximum period of 60 months. They cannot accept deposits
repayable on demand.
ii) NBFCs cannot offer interest rates higher than the ceiling rate prescribed by
RBI from time to time. The present ceiling is 11 per cent per annum. The interest
may be paid or compounded at rests not shorter than monthly rests.
iii) NBFCs cannot offer gifts/incentives or any other additional benefit to the
depositors.
iv) NBFCs (except certain AFCs) should have minimum investment grade credit
rating.
v) The deposits with NBFCs are not insured.
vi) The repayment of deposits by NBFCs is not guaranteed by RBI.
vii) There are certain mandatory disclosures about the company in the
Application Form issued by the company soliciting deposits.
What is 'deposit' and 'public deposit'? Is it defined anywhere?
The term 'deposit' is defined under Section 45 I(bb) of the RBI Act, 1934.
'Deposit' includes and shall be deemed always to have included any receipt of
money by way of deposit or loan or in any other form but does not include:
Are Secured debentures treated as Public Deposit? If not who regulates them?
Effective from April 24, 2004, NBFCs cannot accept deposits from NRI except
deposits by debit to NRO account of NRI provided such amount do not represent
inward remittance or transfer from NRE/FCNR (B) account.
Yes, nomination facility is available to the depositors of NBFCs. The Rules for
nomination facility are provided for in section 45QB of the Reserve Bank of India
Act, 1934. Non-Banking Financial Companies have been advised to adopt the
Banking Companies (Nomination) Rules, 1985 made under Section 45ZA of the
Banking Regulation Act, 1949.
What else should a depositor bear in mind while depositing money with NBFCs?
While making deposits with a NBFC, the following aspects should be borne in
mind:
An unrated NBFC, except certain Asset Finance companies (AFC), cannot accept
public deposits. An exception is made in case of unrated AFC companies with
CRAR of 15% which can accept public deposit up to 1.5 times of the NOF or Rs 10
crore whichever is lower without having a credit rating. A NBFC may get itself
rated by any of the four rating agencies namely, CRISIL, CARE, ICRA and FITCH
Ratings India Pvt. Ltd.
The symbols of minimum investment grade rating of the Credit rating agencies
are:
No, a NBFC cannot accept deposit without rating except an EL/HP company
complying with prudential norms and having CRAR of 15%, though not rated,
may accept public deposit up to 1.5 times of NOF or Rs 10 crore whichever is less.
When a company's rating is downgraded, does it have to bring down its level of
public deposits immediately or over a period of time?
What is the role of Company Law Board in protecting the interest of depositors?
How one can approach it?
Where a non-banking financial company fails to repay any deposit or part thereof
in accordance with the terms and conditions of such deposit, the Company Law
Board (CLB) either on its own motion or on an application from the depositor
directs, by order, the non-banking financial company to make repayment of such
deposit or part thereof forthwith or within such time and subject to such
conditions as may be specified in the order.
We hear that in a number of cases official liquidators have been appointed on the
defaulting NBFCs. What is their role and how one can approach them?
Official Liquidator is appointed by the court after giving the company reasonable
opportunity of being heard in a winding up petition. The liquidator performs
duties of winding up and such duties in reference thereto as the court may
impose.
The liquidator realises the assets of the company and arranges to repay the
creditors according to the scheme approved by the court. The liquidator generally
inserts advertisement in the newspaper inviting claims from depositors/investors
in compliance with court orders. Therefore, the investors/depositors should file
the claims within due time as per such notices of the liquidator.
Yes, a depositor can approach any or all of the redressal authorities i.e consumer
forum, court or CLB.
The Bank has issued detailed directions on prudential norms, vide Non-Banking
Financial Companies Prudential Norms (Reserve Bank) Directions, 1998. The
directions interalia, prescribe guidelines on income recognition, asset
classification and provisioning requirements applicable to NBFCs, exposure
norms, constitution of audit committee, disclosures in the balance sheet,
requirement of capital adequacy, restrictions on investments in land and building
and unquoted shares.
Please explain the terms 'owned fund' and 'net owned fund' in relation to NBFCs?
'Owned Fund' means aggregate of the paid-up equity capital and free reserves as
disclosed in the latest balance sheet of the company after deducting therefrom
accumulated balance of loss, deferred revenue expenditure and other intangible
assets.
i. Audited balance sheet of each financial year and an audited profit and loss
account in respect of that year as passed in the general meeting together with a
copy of the report of the Board of Directors and a copy of the report and the notes
on accounts furnished by its Auditors;
ii. Statutory Annual Return on deposits - NBS 1;
iii. Certificate from the Auditors that the company is in a position to repay the
deposits as and when the claims arise;
iv. Quarterly Return on liquid assets;
v. Half-yearly Return on prudential norms;
vii. Half-yearly ALM Returns by companies having public deposits of Rs 20 crore
and above or with assets of Rs 100 crore and above irrespective of the size of
deposits ;
viii. Monthly return on exposure to capital market by companies having public
deposits of Rs 50 crore and above; and
ix. A copy of the Credit Rating obtained once a year along with one of the Half-
yearly Returns on prudential norms as at (v) above.
What are the documents or the compliance required to be submitted to the
Reserve Bank of India by the NBFCs not accepting/holding public deposits?
The NBFCs having assets size of Rs 100 crore and above but not accepting public
deposits are required to submit a Monthly Return on important financial
parameters of the company. All companies not accepting public deposits have to
pass a board resolution to the effect that they have neither accepted public
deposit nor would accept any public deposit during the year.
However, all the NBFCs (other than those exempted) are required to be
registered with RBI and also make sure that they continue to be eligible to remain
Registered. Further, all NBFCs (including non-deposit taking) should submit a
certificate from their Statutory Auditors every year to the effect that they
continue to undertake the business of NBFI requiring holding of CoR under
Section 45-IA of the RBI Act, 1934.
RBI has powers to cause Inspection of the books of any company and call for any
other information about its business activities.
For this purpose, the NBFC is required to furnish the information in respect of
any change in the composition of its board of directors, address of the company
and its directors and the name/s and official designations of its principal officers
and the name and office address of its auditors. With effect from April 1, 2007
non-deposit taking NBFCs with assets size of Rs 100 crore and above have been
advised to maintain minimum CRAR of 10% and shall also be subject to
single/group exposure norms.
The NBFCs have been made liable to pay interest on the overdue matured
deposits if the company has not been able to repay the matured public deposits
on receipt of a claim from the depositor. Please elaborate the provisions.
In case a depositor requests for pre-mature payment, Reserve Bank of India has
prescribed Regulations for such an eventuality in the Non-Banking Financial
Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998
wherein it is specified that NBFCs cannot grant any loan against a public deposit
or make premature repayment of a public deposit within a period of three
months (lock-in period) from the date of its acceptance, however in the event of
death of a depositor, the company may, even within the lock - in period, repay the
deposit at the request of the joint holders with survivor clause / nominee / legal
heir only against submission of relevant proof, to the satisfaction of the company.
What is the liquid asset requirement for the deposit taking companies? Where
these assets are kept? Does Depositors have any claims on them?
In terms of Section 45-IB of the RBI Act, 1934 the minimum level of liquid asset
to be maintained by NBFCs is 15 per cent of public deposits outstanding as on the
last working day of the second preceding quarter.
Of the 15%, NBFCs are required to invest not less than 10% in approved securities
and the remaining 5% can be in unencumbered term deposits with any scheduled
commercial bank. Thus, the liquid assets may consist of government securities,
government guaranteed bonds and term deposits with any scheduled commercial
bank.
NBFCs have been directed to maintain the mandated liquid asset securities in a
dematerialised form with the entities stated above at a place where the registered
office of the company is situated. However, if a NBFC intends to entrust the
securities at a place other than the place at which its registered office is located, it
may do so after obtaining in writing the permission of RBI. It may be noted that
the liquid assets in approved securities will have to be maintained in
dematerialised form only.
The liquid assets maintained as above are to be utilised for payment of claims of
depositors. However, deposit being unsecured in nature depositors do not have
direct claim on liquid assets.
Please tell us something about the companies which are NBFCs, but are
exempted from registration?
There are some entities (not companies) which carry on activities like that of
NBFCs. Are they allowed to take deposit? Who regulates them?
It is true that there is no ceiling on raising of deposits by RNBCs but every RNBC
has to ensure that the amounts deposited and investments made by the company
are not less that the aggregate amount of liabilities to the depositors.
Can RNBC forfeit deposit if deposit installments are not paid regularly or
discontinued?
Further, an RNBC can accept deposits for a minimum period of 12 months and
maximum period of 84 months from the date of receipt of such deposit. They
cannot accept deposits repayable on demand.